Many farmers obtain health insurance via the ACA marketplace. Under this system, the farmer may qualify for a premium tax credit that will reduce their net health insurance monthly premium amount. However, the farmer will need to reconcile this on their income tax return and if their adjusted gross income (AGI) is too high, they will have to pay all of the premium assistance back with their tax return and in many cases, this can easily exceed $15,000.
The amount of premium tax credit is based on their estimated AGI as compared to the local poverty level. For example, if your estimated AGI is less than 150 percent of the poverty level, then you will owe no premium at all. But if your AGI exceeds 400 percent, then for 2021 and 2022, the maximum amount of the premium will be 8.5% of your AGI. For all other years, if your AGI exceeds 400%, then there is no premium tax credit is available and any that was “advanced” to you will be paid back on your tax return.
For 2020, the American Rescue Plan had a special provision that provided that no premium tax credit would need to be paid back when filing your 2020 return. However, this provision currently does not apply for 2021. Therefore, it is important to know that you may need to pay back some or all of the premium tax assistance that you received.
Let’s look at a couple of examples:
Ben and Julie obtain health insurance on the exchange costing an annual premium of $15,000. The receive a premium tax credit of $10,000 for a net cost of $5,000. 400% of poverty in their situation is $75,000. Final AGI is $75,010. They are required to pay back $1,375 ($75,010 X 8.5% minus $5,000 paid by them). After 2022, they would be required to pay back all $10,000.
Now, let’s assume farm income is much higher and their final AGI is $150,000. In this case, they owe a final premium of $12,750 and must pay back $7,750 when filing their return (these are simplified examples; actual numbers are likely slightly different).
Higher income farmers will now qualify for premium tax credits for 2021 and 2022 but need to be aware that estimating AGI too low will still require premium tax credit paybacks when filing your return.
President Biden would like to make the 2021 and 2022 change permanent but that requires Congress to take action. We will keep you posted.
